Did you know that most mortgage loan professionals have their calculators at hand all of the time? You don’t have to do that, but if you’ve been thinking about buying a house in the next three to twelve months, how can you choose which is the right time? Many people look at home purchase prices to guide their decisions. With prices steadily increasing, you might find that the longer you wait to buy, the fewer homes you’ll find available in your price range. But what about interest rates? Should they influence your decision to buy a home in the year to come?
Yes — mortgage interest rates can make a big difference in home buying
Would you believe that in 1981, home loan interest rates averaged over 18%? Between 1980 and 1982, the lowest average 30-year fixed-rate mortgage was 16.35%. If you bought a $300,000 house in 1981 with a 20% down payment and a 30-year mortgage at an interest rate of 18%, your monthly principal and interest would be $3,617. At a 5% interest rate, your principal and interest would be $1,288. So, yes, mortgage interest rates can make a big difference.
Fortunately for homebuyers, interest rates have been much lower than 18% in the past ten years. The average interest rate in 2018 was 4.54%. In 2019, this average dropped under 4%. Bankrate reported that 90% of mortgages as of 2018 had interest rates between 3.5% and 6%.
Fannie Mae and Freddie Mac, the two largest government-affiliated mortgage corporations, are predicting that 30-year fixed-rate mortgages will average between 3.6% and 3.7% throughout 2020. The Mortgage Bankers Association predicts that interest rates will be about 3.9% throughout 2020. Other organizations, including the National Association of Realtors, are predicting 3.6% average interest rates for a 30-year fixed-rate mortgage.
Will these low rates last forever?
It’s unlikely that the current low mortgage interest rates will stay the same indefinitely. If you have a higher interest rate home loan, you may be able to refinance for a lower interest rate and lower monthly payments. If you’re interested in buying a house over the next year, you should be aware that rates began to decrease in November 2018, but trends like this don’t last forever. Right now, mortgage interest rates can make many homes affordable and can help you to lock in a 30-year or 15-year fixed-rate home loan for the home you want to buy.